In praise of income tax

WHO would have thought so many Nova Scotia policy thinkers, across the spectrum from left to right, would be praising income tax? And calling for a new one at the municipal level to replace property taxes on residents and businesses?

Well, it’s real, and for good reasons.

The Centre for Policy Alternatives (generally left-progressive), the Nova Scotia Chamber of Commerce and now the Atlantic Institute for Market Studies (smaller government and competitive services) have come out in favour of replacing property taxes with a municipal income tax to cover community-wide shared services, plus user fees for area-type services.

Local taxes are now partly based on an assessor’s estimate of unrealized capital gains on homes or business properties. An income tax and user fees would be a fairer, more accurate measure of ability to pay and services received.

And unlike property-value taxes, income taxes stay aligned with your income. You don’t get real-estate inflation pushing up your taxes much faster than your income is growing. As AIMS researcher Juanita Spencer points out, Halifax house values grew twice as fast as incomes between 1996 and 2006. That same trend led to tax revolts and provincial imposition of residential assessment caps in Nova Scotia and New Brunswick, which has in turn shifted the tax burden to business.

Property tax has its defenders. New Brunswick has just decided to stay with property taxes, remove a residential assessment cap, and tweak the system to ease the impact of spikes in property values. It will re-assess properties more frequently using satellite mapping and phase in hikes over 10 per cent. But this won’t prevent assessment-based taxes from again outstripping the growth of household incomes.

Ted Mallett, chief economist of the Canadian Federation of Independent Business, is also opposed to a local income tax. He rightly points out there are complications in calculating where business income is earned. He also worries incomes are a less stable tax base because they rise and fall with the economic cycle.

But what Mr. Mallett sees as great features of property tax are the very bugs that exasperate taxpayers. Paying higher taxes while their income is falling is not stability for them.

In this debate, we’re with the revolution. The best measure of ability to pay is income. We already report our incomes and are taxed on them, and a municipal surcharge could be easily added. Municipalities don’t need to guess our incomes by poring over property sales and satellite images of our homes. As Ms. Spencer puts it, it’s time to replace what amounts to a badly designed income tax with a better one.